Can Project Paint be used with Cycles?
Project Paint is a Blender Render feature that doesn't appear to work when using Cycles. It is also an old way of texture painting.

In Cycles you need to add a material to the object and have an image node that defines what image is to be used to receive the results of texture painting.

Rather than using project paint you should try painting with a texture, I am referring to using a texture with a paint brush while in texture paint mode. The texture can be an image or any other procedural texture available in blender.



Once you have a texture setup, you choose the texture and set the brush mapping to Stencil then the texture will be overlaid in the 3dview. You can move the overlay with the right mouse button and rotate your model as usual, when the texture is in the place you want it to appear you can paint it on your model. The overlay clearly shows where the texture will be placed on your model.



While right clicking easily moves the overlay around, you can also use Ctrl-click to quickly rotate the overlay and Shift-click to scale the overlay to get the texture right where you want it to appear.

This technique works just as well in both Blender Render and Cycles. The overlay feature of texture painting was added in blender 2.67